Posts Tagged ‘nonprofit governance’

Author Simone Joyaux asks these questions: “How many times have you sat in a boardroom and wished you were someplace else? How many times did your wish relate to others in the room? Maybe some particular person?”

Joyaux acknowledges we’ve all been there. Perhaps the feeling occurs only in passing but what do we do when our feeling about a board member arises more frequently in response to a pattern of legitimately bad behavior?

Unfortunately, the author explains that too often we do nothing about it for a variety of reasons:

1) We don’t want to hurt anyone’s feelings.

2) We’re afraid of conflict or confrontation.

3) Volunteer work is supposed to be fun.

4) We’re all just volunteers so let’s avoid the challenging issues.

No matter the reason, Joyaux asserts we cannot compromise the organization’s quality due to a little discomfort or the loss of a bad board member’s donation. In short, it’s unacceptable.

Why? Because of the great costs to your cause in the areas of organizational integrity, delivery on mission impact and ability to retain good board members, to name only a few.

There are no quick fixes or silver bullets for turning around bad board member performance. The good news is there are answers.

Joyaux emphasizes the critical importance of every board distinguishing between a collective board and its individual members. Each has a distinct role. The collective board makes the decisions, not necessarily unanimously, and presents a united front in supporting those decisions. It treats all board members equally, including the board chair, as no one board member is more important than another.

Joyaux provides a list of board responsibilities. A sampling of the list follows:

· Ensure financial sustainability by adopting a budget and fund development plan and monitoring performance.

· Hire, appraise and fire the chief executive.

In contrast, the individual board members have different responsibilities. Some of their main responsibilities include:

· Attend board meetings.

· Engage in board conversation. (Silence is consent and is not acceptable.)

· Give a financial contribution.

· Help nurture relationships with donors and people interested in the cause.

· Help carry out fundraising activities.

· Ask strategic questions.

Keep evaluation of the board and individual separate

By separating the individual trustee from the collective effort, it’s not only easier to establish accountability and volunteer job descriptions, the chair and executive director can fall back on each line that describes the discretionary effort of each person rather than dillute someone’s lack of effort in the overall board’s outcomes.

In Firing Lousy Board Members, Joyaux explains how it’s imperative that you move quickly with underperforming board members because your cause deserves better. While she acknowledges this task is not always easy, this guide will provide what Joyaux calls helpful “recipes.” What’s more, Joyaux has done everything she’s suggested in this book—not only as a staff member but also as a board member and chair.

“A crisis is a terrible thing to waste,” American economist and NYU professor Paul Romer was credited for saying in 2004. His sentiment, unfortunately, is appropriate again today as nonprofits throughout the sector learn from tough decisions that help them recover from the Great Recession and what we are now seeing will likely be dubbed, “The Great Correction.”

Many of you are familiar with the notion that negative news often gets repeated more often than positive news. This post is an effort to tip the scales toward encouraging information I recently read in The Chronicle of Philanthropy: “How Recession-Racked Charities Emerged Stronger Than Before.”

Paul Romer would be pleased to learn the nonprofit sector did not waste the Great Recession. They’re making good use of it and demonstrating impressive resolve. “Hopeful lessons” are shared in the Chronicle article, and one in particular involves Voices for Children. Voices is a nonprofit dedicated to providing every foster child in San Diego County with a volunteer court advocate.

Voices for Children

After laying off a quarter of the staff, the board resigned itself to the fact that it would have to scrap its ambitious fundraising goal set years earlier and rebuild by stepping up with its own members and setting up a skeletal development shop. The executive director courted and hired a seasoned development director from the arts arena and paid the fundraiser more than anyone else. Today the budget is approaching $6 million, double the amount of its pre-recession budget. Payroll has reached 73 employees. Voices is now in a better financial position and perhaps better equipped to handle the next economic downturn.

Administrative and space collaborations

Stronger nonprofits have also resulted from collaboratives to share space and administrative resources. For example, in Denver, international development nonprofits renovated a 19th-century horse and trolley barn, which they call the Posner Center. The Center is a 25,000-square-foot space that now houses 60 nonprofits. According to the Chronicle, “The Center recently awarded $60,000 in grants to fund partnerships among its tenants, including one between Engineers Without Borders and a group that builds footbridges in Guatemala.”

Built to last

In a related article, “Bold Choices in Dark Times,” St. Louis Opera general director Timothy O’Leary was faced with collecting promised pledges on the day the stock market crashed. The donors told him they needed to “trim” their major gift commitments. O’Leary reported, “The difference [between pledges and fulfillments] was not unsubstantial.”

On the heels of these discouraging donor visits, O’Leary, the new board chair and artistic director, set to work creating a long-term strategic plan that would weather a long economic crisis. While other arts organizations were reducing schedules and turning to crowd-pleasing classics, the St. Louis opera committed to commissioning new and creative work. O’Leary was convinced new and exciting material would compel loyal patrons to return and support the opera.

“The downturn hit the opera’s corporate sponsorships the hardest, and revenue slipped further when the company reduced its draw from its $16.5-million endowment. To compensate, it froze salaries, suspended staff 401(k) contributions, and renegotiated deals with its unions. Yet as the opera rallied donors around its commitment to risk-taking productions, individual giving climbed — gradually at first, and then 21 percent in 2011.”

In 2013, a commitment to innovation and collaboration paid off with an unprecedented debut of “Champion,” which generated more ticket sales than any other production in the history of the St. Louis opera. “Champion”was named a finalist for international opera of the year. Today, the endowment is now topping $28 million.

Always in crisis

With the Great Recession over and a market correction that hopefully will be fleeting, it might be tempting to try risky ventures or allow yourself some wiggle room with financials. Perhaps the lesson here is that nonprofits should act as if they’re always preparing for a crisis. Look for ways to work smarter and leaner and focus on what’s working and core competencies. If you’re interested in engaging in financial forecasting or looking at different scenarios, consider contacting us at Execute Now! where we can help you assemble a financial plan you can feel confident about following.

Your organization’s board recruitment goals will change depending on where your nonprofit is in its life cycle. There’s just one problem. Perhaps there was a time when people could describe a fairly predictable, steady trajectory for the life of a nonprofit board. Not so in today’s economy.

Today, an organization that is thriving one day can lose a major anchor funder the very next day. For example, a key funder could be a company that shuts down or is acquired, or an individual whose finances are wrapped up with the wrong investor, or a city government that has lost its commercial base. On the other hand, I am seeing nonprofits receive significant infusions of cash that are game-changers. For example, there are nonprofits receiving substantial new federal grants or contributions from individual donors or private foundations that are shifting their focus to fewer causes and organizations.

Organizational life cycles are also radically affected as nonprofits enter a multitude of strategic alliances – a more and more common phenomenon. Even more game-changing are nonprofit mergers.

When organizations go through such dramatic revenue changes, as well as strategic alliances, the pressure on boards to adapt can be fairly fierce. New pressures are driving some boards to be clearer about board member expectations, board assessment, plans for leadership succession and board composition.

Assessing where your organization stands

1) Before deciding whom you need to recruit for your board, think about the following:

2) What was the driving purpose to establish your organization in the first place, even if that was long ago? It’s valuable to put today in a historical context.

3) What’s your mission today? Is it still relevant and compelling?

4) What’s your vision for the organization’s greater potential over the coming years?

Based on numbers two through five above (the mission, the vision, the revenue model, and key challenges and opportunities), consider the extent to which your board has the diversity of expertise, experience, perspectives, networks and relationships to:

Ensure there is a strategy for financial and programmatic success, and plans to update the strategy in an iterative way (board in collaboration with the CEO).

Ensure there are metrics for the board and funders to monitor financial and programmatic progress (board in collaboration with the CEO).

Provide financial and fiduciary oversight.

Select board members with leadership potential for leadership succession planning.

Determining whom you need on your board to advance the mission

Based on “where your board stands” (above), consider the qualifications you seek as you identify and recruit new board members. Think about recruiting new board members with:

Leadership potential.

Diversity of perspectives.

Experience and expertise in particular areas such as: finance, accounting, public relations, law, strategic planning and the mission area on which the nonprofit focuses.

Ability to directly provide support or make valuable introductions in key revenue areas that are relevant to your nonprofit – for example, government relations, corporate funding, private donors, foundations, or pricing for fees for services.

A firm commitment to meet the board’s expectations to be engaged productively in the ways you discuss and define together with the candidate.

Less predictability requires greater dynamism

The era of lengthy terms of board service and board leadership are over. Historically, board chairs served for many years, and board composition remained stagnant sometimes for decades. In today’s challenging and enterprising environment, boards and their CEOs need to be engaged in iterative organizational planning, a highly dynamic process of assessing the board and identification and recruitment of board members who can and will commit to advance the organization in serving the community.

Every now and then there’s a board of directors that — how can this be written diplomatically — doesn’t seem to get it. This doesn’t happen often, but when it does it’s never a pretty sight. Usually the not-getting-it board seems to be paying attention, and its members really do want the best for their organization, but somehow or another “the best” never seems to happen. In fact, to most outsiders, the organization might seem immobilized and floundering. There are many reasons why nonprofits seem headed for doom, dysfunction, or both, and most of the time it isn’t directly attributable to board members. But when it is a board problem, here are some frequent scenarios and potential fixes.

The past and the short term future

This common problem was covered in “What Time Are You?” in the May 2013 issue of The NonProfit Times. Ideally, a board of directors is focused mostly on the future, less so on the details of the present. This is because boards of directors should be leaders, not outsiders immersed in management detail. Perhaps not surprisingly, board members’ preferred orientation to time is often connected with their personalities and what they do for work. Board members who work in technical roles of any kind often prefer to operate in the here and now. This means they could be uncomfortable with the kind of thinking that leaders must do to position a nonprofit for the next three or four years.

The solution to this kind of board dysfunction is straightforward yet admittedly difficult. The simplest approach is to construct each board agenda so that the bulk of time will be spent on future opportunities and challenges instead of focusing on subjects from the past or votes requiring immediate attention. Constructing the agenda so that the majority of items relate to future decisions is actually simpler than it seems. It does require that the CEO and board chair work closely together, but that is largely a matter of sharing the same future orientation to time. Part of leadership is shared discipline among the leadership team, and this is a relatively easy place to start.

Visioning as trustees

The term “trustee” is sometimes used to refer to a conventional nonprofit board member, but that is usually either a loose statement of philosophy or an inaccuracy. In legal terms, a trustee holds property on behalf of an outside beneficiary. That is in no way similar to nonprofit board member responsibilities, which are more related to leadership than conversation of assets, but the mythology persists.

Implicit in a trustee self-image is the idea that the trustee must protect the asset as their primary duty. But nonprofit board members are intended to lead the organization, along with the CEO, and preserving assets for beneficiaries is never in the equation. Board members who see their role as “protecting” the organization will always be conservative in the literal definition of the term. While this role might work well for financial assets not owned by the trustee, it can lead to an exaggerated sense of outside threats and a paralyzed nonprofit board if it becomes the dominant image of the board’s role.

A good board member selection process and continual self-education will fix this problem over time. One board, for example, recruited new members by inferring from their strategy the type of characteristics that would be most beneficial. This requires discipline because the tendency is always to search for “star” board members and then try to adapt them to the organization. A self-education process can reinforce those board member skills.

Different “business models”

Any large industry develops its own jargon and shorthand references, and the nonprofit sector is no exception. But nonprofits funded in large part by federal and state governments are inevitably immersed in payment systems, quality assurance mechanisms, and political developments so detailed that even a nonprofit CEO may not be fully abreast of all the nuances.

Board members from outside the sector often speak of their meeting agendas as a thicket of obscure regulations, political connections and mystifying lingo. While these are all necessary elements to manage, board members quickly give up hope of being conversant in them and as a result their ability to make contributions is reduced. This is a situation where Not Getting It says more about the industry than it does the board members. The solution is to reduce the language and complexities to an understandable level. Votes and discussions should take place to allow both board members and senior staff to have solid discussions, with insider references kept to a minimum. And the policies and decisions arising from the discussions need to be expressed in lowest-common- denominator language.

Denial of service

Fundraising imperatives help shape a preference for wealthy board members in a nonprofit with an established fundraising capacity. Equity investors, bankers, and high net-worth individuals can be prized board members because of their personal ability to make contributions and for their networks of similar professionals. The conflict these kinds of board members face is that they are so thoroughly steeped in equity investing and money management that they cannot operate in the non-equity world of nonprofits. Often their personal approach to governance becomes a largely passive and reflexive acceptance of majority decision-making.

Here’s what happened with the board of directors of a large national organization.

Arguably the most powerful person in the room was a former corporate titan with an international reputation who sat silently during a lengthy presentation and discussion of nonprofit mergers. His knowledge of the subject would have been welcomed by all, but for whatever reason he remained silent. Whether motivated by a sincere desire not to complicate the discussion, or for personal reasons, this kind of “denial of service” will make the board less effective by not offering personal expertise. Unlike the other scenarios this one is likely to be tied to individual board members, and often they are the board members with much to offer. Board presidents can be useful in reversing the situation simply by making a personal appeal, and the CEO has the ability to coax more input should they wish to do so. Nonprofit board governance is an imprecise process at best.

Although in theory the role of the board of directors is clear enough, the actual practices of boards vary greatly. A nonprofit board’s apparent passivity or disinterest may be a reflection of the difficulty of nonprofit governance, but on occasion it is the result of a breakdown in the governance process itself. Left unchecked this can lead to confusion and decline. But with the right kind of self-reflection and support, most boards will get it — and get it done.

Over-reliance on rudimentary fundraising and lack of teamwork among board, staff and CEO

Most nonprofits that are envious of high-performing organizations with robust fundraising programs are usually reliant on one dominant funding source for too many years, renew rudimentary or sleepy grant programs, operate planned giving on a “self-serve” basis, and have a board that doesn’t work efficiently as a team with the CEO and staff.

What to do when your board is hot or cold with fundraising

While a chief concern is a cohesive board, CEO and staff, another primary focus Pagnoni emphasizes is, of course, fundraising. In his book, The Nonprofit Fundraising Solution, Pagnoni discusses what to do when your board’s core strength is fundraising and what to do when the core strength is not fundraising.

First, do a little detective work

To take an organization to the next level, a board and CEO must align themselves around the strategic plan, where both parties have a deep understanding of the vision. Then, Pagnoni emphasizes finding your board’score strength (e.g., fundraising, compliance, etc.) through conversations, a perusal of board minutes, attendance at meetings, and possibly a self-assessment.

The cold shoulder

If a board’s core strength isnot fundraising, Pagnoni suggests these steps “in their ideal order of execution”:

1) Recruit a fundraising professional for the board.

2) Implement a development or fundraising plan.

3) Establish gift acceptance policies and use them (i.e., which kind of gifts you’ll accept).

4) Develop the necessary committee structure (at least a development committee and possibly an events committee or planned giving committee).

3) Review your development plan and address a longer period of growth over 10 to 25 years.

4) Execute more detailed business planning.

5) Go deeper into one dominant and minor source of revenue, instead of diversifying, since going deeper may prove more lucrative with a good fundraising board.

6) Develop subcommittees to report to the development committee.

7) Ensure that strong connections are created between all your various fundraising tactics (e.g., events program connects with the individualized giving program).

8) Make routine use of external consultants to infuse talent.

Let your relaxed confidence emerge, be nimble and keep an eye on ethics

When it comes to fundraising in harmony with your board whether they embrace or sidestep fundraising, Pagnoni emphasizes identifying solutions that fit your own challenges. He says, “Each person must find his own fundraising path and use his own experience, infused with best practices. What I’ve offered [in my book] are my own experiences based on best practices. Many people ‘want to do it right,’ and I’d rather see a more relaxed confidence emerge where you try a few things, evaluate, change course as may be required. So the challenge here is to be nimble with applying the strategies that I outline and always head toward the most ethical ways to raise the most revenue.”

Today’s nonprofits face several challenges that are forcing them to operate more and more like their business counterparts. Competition for dollars coupled with demands for accountability has caused nonprofits to reevaluate the way they do business. As nonprofits struggle to pay their executive directors more, one of the business practices they are being asked to consider is a pay-for-performance program.

Simply put, a pay-for-performance program—also known as merit pay— is one in which an employee’s pay is based on work performance and demonstrated results. Employees who contribute more receive a higher salary or “merit” increase. This system assumes that job performance can be observed and measured accurately.

The theory behind pay-for-performance is that rewards and bonuses motivate employees to do their jobs better. While there are several advantages to pay-for-performance systems–including acknowledging, with dollars, exceptional employees—there are also many pitfalls.

In theory, the idea sounds perfect: Employees will work harder and more efficiently if they are given more money or other rewards for hitting certain goals. Employees also like the idea of being able to demonstrate their abilities and reach, if not surpass, their goals. In practice, however, the process of connecting pay to performance is trickier than it seems.

Leading writer on the subject of money as a motivator, Alfie Kohn’s Punished by Rewards(Houghton Mifflin) says that rewards may actually damage quality and productivity and cause employees to lose interest in their jobs. Why? Among other reasons, Kohn says, rewards create competitiveness among
employees and undermine collaboration and teamwork. In addition, rewards reduce risk taking, creativity and innovation, because employees will be less likely to think outside the box if doing so jeopardizes their chances for a reward.

If you are considering a pay-for–performance system, here are some questions to consider:

What is your compensation philosophy?

What does your organization value in terms of what and how it wants to pay employees? Your philosophy should support and be compatible with the organization’s specific pay objectives, long-term strategy and overall mission.

Many nonprofits pay below market wages, meaning that an employee performing the same tasks and with the same amount of experience could potentially earn more in the same job in the for-profit sector. Nonprofits usually balance this with more generous leave packages and the chance to work in a mission-rich environment. In some nonprofits, linking certain performance objectives and pay increases to such measurables as the number of constituents served or to the financial health of the organization may give a boost to the executive director’s base salary level, thus equalizing his or her pay to the market.

What message do you want to send?

Pay-for-performance programs usually reward individual performance. However, the organization of many nonprofits is an open, collaborative environment where work gets done through a group effort. Instituting a system that rewards individuals rather than the whole may be a hard sell—and may work against the organizational spirit. If you link pay to performance, make sure that individual job duties are assessed with pay linked to those tasks.

Can you really do this?

An organization contemplating moving to a pay-for-performance system should think through a couple of issues.

First and foremost is the organization’s ability to pay. In general, eight to 10 percent of the budget salary line should be set aside for merit increases. Can your organization afford to do this?

Next, your organization must identify those job duties that can be observed and measured and which are of enough value to build into the merit increase. Measurables can include such goals as increasing dues-paying clients or services and products offered, or reducing customer complaints and errors. Harder to measure is how passionate employees are about the organization or how much they live the organization’s vision and mission. Finally, look at the structure of your organization—pay-for-performance systems work well in hierarchical organizations where each role builds to the job above it.

What rewards do you offer besides money?

There are other ways to reward those employees whose work you value besides giving them more money. Good compensation packages include superior leave options, including vacation and sick leave, as well as health and medical coverage that is as generous as the budget allows. Incentives can also include resources to support the executive director to attend professional conferences or to sit on national boards. And a bonus at the end of a financially successful year is always a strong motivator.

No matter what choice is made on how to pay employees, especially the executive director, make sure that those doing their jobs know what is expected of them. Clearly state job expectations and set realistic performance goals to accomplish those tasks. If an employee isn’t performing as expected, give feedback and give it immediately. If an employee is performing, celebrate that employee’s success.